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Cambridge University Press978-1-108-49256-0 — The Cambridge Handbook of Smart Contracts, Blockchain Technology and Digital PlatformsEdited by Larry A. DiMatteo , Michel Cannarsa , Cristina Poncibò FrontmatterMore Information

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THE CAMBRIDGE HANDBOOK OF SMART CONTRACTS, BLOCKCHAIN TECHNOLOGY

AND DIGITAL PLATFORMS

The product of a unique collaboration between academic scholars, legal practitioners andtechnology experts, this handbook is the first of its kind to analyze the ongoing evolution ofsmart contracts, based upon blockchain technology, from the perspective of existing legalframeworks – namely, contract law. The book’s coverage ranges across many areas of smartcontracts and electronic or digital platforms to illuminate the impact of new, and oftendisruptive, technologies on the law. With a mix of scholarly commentary and practicalapplication, chapter authors provide expert insights into the core issues involving the use ofsmart contracts, concluding that smart contracts cannot supplant contract law and the courts,but leaving open the question of whether there is a need for specialized regulations to preventabuse. This work should be read by anyone interested in the disruptive effects of newtechnologies on the law generally and contract law in particular.

Larry A. DiMatteo is Huber Hurst Professor of Contract Law at the University of Florida. He isthe former Editor-in-Chief of the American Business Law Journal, a 2012 Fulbright Professorat the University of Sofia, and author or coauthor of 120 publications, including 12 books. Hisresearch interests are in the fields of contract law, international sales law, and legal theory.

Michel Cannarsa is Associate Professor andDean at LyonCatholic University Faculty of Law.His areas of research are international and European law, commercial law, comparative law,consumer law, law of obligations and legal translation.

Cristina Poncibò is Associate Professor of Comparative Private Law at the Department of Lawof the University of Turin (Italy). Her research interests are in the fields of comparative law,comparative contract law, private law and market regulation.

www.cambridge.org/9781108492560

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The Cambridge Handbook ofSmart Contracts, BlockchainTechnology and DigitalPlatforms

Edited by

Larry A. DiMatteoUniversity of Florida

Michel CannarsaLyon Catholic University

Cristina PoncibòUniversity of Turin


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www.cambridge.orgInformation on this title: www.cambridge.org/9781108492560DOI: 10.1017/9781108592239

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To my mother, Rose DiMatteo, for her lifetimeof support, love and devotion

LAD

To Marie, Juliette and AliceMC

To my fatherCP


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Summary of Contents

List of Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page xviii

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi

Part I General Framework: Legal and Technological . . . . . . . . . . . . . . . . . 1

1 Smart Contracts and Contract Law . . . . . . . . . . . . . . . . . . . . . . . . . . 3Larry A. DiMatteo, Michel Cannarsa, and Cristina Poncibò

2 Definitions of Smart Contracts: Between Law and Code . . . . . . . . . . . . . 19Riccardo de Caria

3 Technology of Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Valentina Gatteschi, Fabrizio Lamberti, and Claudio Demartini

Part II Contract Law and Smart Contracts . . . . . . . . . . . . . . . . . . . . . . 59

4 Formation of Smart Contracts under Contract Law . . . . . . . . . . . . . . . . 61Mateja Durovic and André Janssen

5 Challenges of Smart Contracts: Implementing Excuses . . . . . . . . . . . . . . 80Eric Tjong Tjin Tai

6 Contract Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102Michel Cannarsa

7 Smart Contracts: Contractual and Noncontractual Remedies . . . . . . . . . . . 118Cristina Poncibò and Larry A. DiMatteo

Part III Electronic Platforms and Networks . . . . . . . . . . . . . . . . . . . . . 141

8 Digital Platforms: Regulation and Liability in EU Law . . . . . . . . . . . . . . 143Piotr Tereszkiewicz

9 Blockchains: A Technology for Decentralized Marketplaces . . . . . . . . . . . 160Eliza Mik

10 Regulating Smart Contracts and Digital Platforms: A Chinese Perspective . . . . 183Jia Wang and Lei Chen

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Part IV Privacy, Security and Data Protection . . . . . . . . . . . . . . . . . . . 211

11 Blockchain and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . 213Lokke Moerel

12 Data Protection in Hybrid Worlds . . . . . . . . . . . . . . . . . . . . . . . . . 233Sjef van Erp

13 Smart Contracts: Issues of Property and Security Rights . . . . . . . . . . . . . . 240Louis-Daniel Muka Tshibende

14 Algorithmic Contracts and Consumer Privacy . . . . . . . . . . . . . . . . . . . 251Lauren Henry Scholz

Part V Smart Contracts: Courts and the Legal Profession . . . . . . . . . . . . . 269

15 Smart Contracts and the Courts . . . . . . . . . . . . . . . . . . . . . . . . . . 271Marc Clément

16 Usefulness and Dangers of Smart Contracts in Consumer Transactions . . . . . 288Oscar Borgogno

Part VI Future of Smart Contracts, Blockchain and Artificial Intelligence . . . . 311

17 Smart Transactional Technologies, Legal Disruption, and the Case of NetworkContracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313Roger Brownsword

18 Observations on the Impact of Technology on Contract Law . . . . . . . . . . . 334Barbara Pasa and Larry A. DiMatteo

19 Visions of Future: Smart Contracts, Blockchain, and Artificial Intelligence . . . 359Diana Wallis

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Contents

List of Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page xviii

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi

Part I General Framework: Legal and Technological . . . . . . . . . . . . . . . . . 1

1 Smart Contracts and Contract Law . . . . . . . . . . . . . . . . . . . . . . . . . . 3Larry A. DiMatteo, Michel Cannarsa, and Cristina Poncibò

1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.2 Rush to Judgment: Is Additional Regulation Needed? . . . . . . . . . . . . . . . . . . . 6

1.3 Formalism and Contextualism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1.3.1 Form and Context: Smart Contract . . . . . . . . . . . . . . . . . . . . . . . . . 8

1.4 Enforceability of Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1.5 “Dumb, Smart Contracts” to “Smart, Smart Contracts”: Issues of Completeness

and Normativity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

1.6 Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1.6.1 Law and Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1.6.2 Smart Contracts and Contract Law . . . . . . . . . . . . . . . . . . . . . . . . 12

1.6.3 Electronic Platforms and Smart Contracts . . . . . . . . . . . . . . . . . . . . 13

1.6.4 Smart Contracts as Legally Disruptive . . . . . . . . . . . . . . . . . . . . . . 14

1.6.5 Technology in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1.6.6 Blockchain Technology: Privacy, Security, and Data Protection Issues . . . . . 15

1.6.7 Smart Contracts: Courts, Lawyers, and Consumers . . . . . . . . . . . . . . . 17

1.6.8 Observations and Visions of Technology and the Law: Smart Contracts,

Blockchain, and Artificial Intelligence . . . . . . . . . . . . . . . . . . . . . . 17

1.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2 Definitions of Smart Contracts: Between Law and Code . . . . . . . . . . . . . . 19Riccardo de Caria

2.1 Introduction: Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.1.1 Blockchain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.1.2 (Decentralized) Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 21

2.2 Current and Evolving Legal Framework . . . . . . . . . . . . . . . . . . . . . . . . . 24

2.3 Smart Contracts and Blockchain in Action . . . . . . . . . . . . . . . . . . . . . . . . 26

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2.4 Legal Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

2.4.1 Assets Protected by Intellectual Property Laws? . . . . . . . . . . . . . . . . . 29

2.4.2 A Form of Preemptive Self-Help? . . . . . . . . . . . . . . . . . . . . . . . . . 31

2.4.3 Issues of Jurisdiction and Applicable Law . . . . . . . . . . . . . . . . . . . . 32

2.4.4 Probative Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

2.4.5 General Data Protection Regulation . . . . . . . . . . . . . . . . . . . . . . . 35

2.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

3 Technology of Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Valentina Gatteschi, Fabrizio Lamberti, and Claudio Demartini

3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

3.1.1 How Does a Blockchain Work? . . . . . . . . . . . . . . . . . . . . . . . . . . 38

3.1.2 How Does a Smart Contract Work? . . . . . . . . . . . . . . . . . . . . . . . 42

3.2 Examples of Applications of Blockchain and Smart Contracts . . . . . . . . . . . . . . 45

3.2.1 Personal Data Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

3.2.2 Notary Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

3.2.3 Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

3.2.4 Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

3.2.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

3.2.6 Government, Healthcare and Education . . . . . . . . . . . . . . . . . . . . . 50

3.2.7 Software and Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

3.2.8 Sharing Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

3.2.9 Social Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

3.3 Mainstream Adoption of Blockchain and Smart Contracts: Open Issues . . . . . . . . 53

3.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Part II Contract Law and Smart Contracts . . . . . . . . . . . . . . . . . . . . . . 59

4 Formation of Smart Contracts under Contract Law . . . . . . . . . . . . . . . . . 61Mateja Durovic and André Janssen

4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

4.2 Evolution of Blockchain Technology and the Rise of Smart Contracts . . . . . . . . . 63

4.3 Blockchain-Based Smart Contracts and the Process of Contract Formation . . . . . . . 65

4.4 The Compatibility of Smart Contracts with the Requirements of Contract Formation . 66

4.4.1 Offer and Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

4.4.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

4.4.3 Intention to Create Legal Relations . . . . . . . . . . . . . . . . . . . . . . . . 71

4.4.4 Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

4.5 Conflict Areas between Smart Contracts and Traditional Contract Law . . . . . . . . . 72

4.5.1 Flexible Enforceable Legal Contracts versus Firm Self-Enforcing

Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

4.5.2 The Different Aims of Legal Contracts and Smart Contracts . . . . . . . . . . 75

4.5.3 Computer Code versus Natural Language . . . . . . . . . . . . . . . . . . . . 76

4.5.4 Consumer Protection Law and (Egalitarian) Smart Contracts . . . . . . . . . . 77

4.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

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5 Challenges of Smart Contracts: Implementing Excuses . . . . . . . . . . . . . . . 80Eric Tjong Tjin Tai

5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

5.2 Characteristics of Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

5.2.1 Bitcoin and Blockchain Technology . . . . . . . . . . . . . . . . . . . . . . . 81

5.2.2 Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

5.2.3 I/O Functions: Oracles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

5.2.4 Programming Intentions and Legal Rules . . . . . . . . . . . . . . . . . . . . 84

5.3 Law of Excuse for Non-performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

5.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

5.3.2 Excuses and the DCFR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

5.3.3 German Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

5.3.4 French Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

5.3.5 English Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

5.3.6 Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

5.4 Implementing Excuses in Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . 91

5.4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

5.4.2 Determining the Cause of Non-performance . . . . . . . . . . . . . . . . . . 91

5.4.3 Determining the Attributability of the Cause . . . . . . . . . . . . . . . . . . . 93

5.4.4 Specific Categories of Excuses . . . . . . . . . . . . . . . . . . . . . . . . . . 94

5.4.5 Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

5.4.6 Breach by the Other Party and Anticipatory Breach . . . . . . . . . . . . . . . 96

5.4.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

5.5 The Limits of Smart Contracts and the Evolution of Excuses . . . . . . . . . . . . . . 98

5.5.1 Ex Ante Regulation versus Ex Post Adjudication . . . . . . . . . . . . . . . . . 98

5.5.2 Vague Standards and Libraries of Conditions . . . . . . . . . . . . . . . . . . 98

5.5.3 Relational Contracts and the Use Cases for Smart Contracts . . . . . . . . . . 99

5.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

6 Contract Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102Michel Cannarsa

6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

6.1.1 Law and Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

6.1.2 The Smart Contracts Phenomenon . . . . . . . . . . . . . . . . . . . . . . . 103

6.2 An Overview of Blockchain Technology and Smart Contracts . . . . . . . . . . . . . 105

6.2.1 Variety of Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

6.2.2 Language of Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

6.2.3 Physical and Virtual Environments . . . . . . . . . . . . . . . . . . . . . . . 107

6.3 Traditional Interpretation of Smart Contracts . . . . . . . . . . . . . . . . . . . . . 108

6.3.1 Traditional Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

6.3.2 New Objects and Rules of Interpretation . . . . . . . . . . . . . . . . . . . . 111

6.4 Smart Interpretation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

6.4.1 Automated Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

6.4.2 The End of Interpretation by Courts? . . . . . . . . . . . . . . . . . . . . . 114

6.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

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7 Smart Contracts: Contractual and Noncontractual Remedies . . . . . . . . . . . 118Cristina Poncibò and Larry A. DiMatteo

7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

7.1.1 Illusion of Self-Sufficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

7.1.2 Inflexibility of Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 120

7.1.3 Smart Contracts and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 121

7.2 Trust as Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

7.2.1 Architecture of Trust for Smart Contracts . . . . . . . . . . . . . . . . . . . 122

7.3 Self-Help for Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

7.4 Self-Help: Codifying, Security, Privacy, and Performance . . . . . . . . . . . . . . . 127

7.4.1 Codifying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

7.4.1.1 Writing Correct Smart Contracts . . . . . . . . . . . . . . . . . . 128

7.4.1.2 Training for Coders and Legal Engineering . . . . . . . . . . . . . 129

7.4.1.3 Modifying Smart Contracts . . . . . . . . . . . . . . . . . . . . . 129

7.4.1.4 Avoiding Underoptimized Smart Contracts . . . . . . . . . . . . . 130

7.4.1.5 Complexity of Programming Languages . . . . . . . . . . . . . . . 130

7.4.2 Security Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

7.4.3 Privacy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

7.4.4 Performance Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

7.5 Blockchain-Based Self-Help . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

7.5.1 Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

7.5.2 Deposits or Escrow Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

7.5.3 Gossiping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

7.5.4 Reputation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

7.5.5 Social Repudiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

7.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Part III Electronic Platforms and Networks . . . . . . . . . . . . . . . . . . . . . 141

8 Digital Platforms: Regulation and Liability in EU Law . . . . . . . . . . . . . . . 143Piotr Tereszkiewicz

8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

8.2 Legal Regime of the E-Commerce Directive . . . . . . . . . . . . . . . . . . . . . . 144

8.2.1 Liability under the E-Commerce Directive . . . . . . . . . . . . . . . . . . 144

8.2.2 Interplay of the E-Commerce Directive and Other Regulatory Regimes . . . 146

8.3 Position of the European Commission . . . . . . . . . . . . . . . . . . . . . . . . . 148

8.3.1 Criteria for Establishing the Contractual Role of a Digital Platform . . . . . 148

8.3.2 Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

8.4 Contract Law Approaches to Determining the Status of Digital Platforms . . . . . . 150

8.5 Discussion Draft of Directive on Online Intermediary Platforms . . . . . . . . . . . 152

8.5.1 Content of Discussion Draft . . . . . . . . . . . . . . . . . . . . . . . . . . 152

8.5.2 Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

8.6 ‘Retailer-Liability’ Approach to Digital Platform Liability . . . . . . . . . . . . . . . 156

8.6.1 New Package Travel Directive as Referent . . . . . . . . . . . . . . . . . . . 156

8.6.2 Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

8.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

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9 Blockchains: A Technology for Decentralized Marketplaces . . . . . . . . . . . . 160Eliza Mik

9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

9.1.1 Roadmap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

9.2 What Are “Blockchains”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

9.2.1 Public Blockchains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

9.2.2 Private Blockchains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

9.2.3 Weighing the Risks and Benefits . . . . . . . . . . . . . . . . . . . . . . . . 164

9.3 Dissecting Decentralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

9.3.1 The Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

9.3.2 The Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

9.3.3 In Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

9.4 Decentralization and Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

9.4.1 Clarifying the Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

9.4.2 The Importance of Off-Chain Governance . . . . . . . . . . . . . . . . . . 169

9.5 Blockchains Are . . . Databases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

9.6 Blockchains Are . . . Immutable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

9.7 The Transactional Layer: “Smart Contracts” . . . . . . . . . . . . . . . . . . . . . . 173

9.7.1 Problems with the Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

9.7.2 Encoding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

9.7.3 Interfacing with the Real World . . . . . . . . . . . . . . . . . . . . . . . . 175

9.8 A Case Study: OpenBazaar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

9.8.1 A Broad Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

9.8.2 Payment and Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . 178

9.8.3 Control and Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

9.8.4 “Pockets” of Centralization . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

9.9 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

10 Regulating Smart Contracts and Digital Platforms: A Chinese Perspective . . . . 183Jia Wang and Lei Chen

10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

10.2 Development of Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 184

10.2.1 Emerging Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 184

10.2.2 Development of Smart Contracts in China . . . . . . . . . . . . . . . . 186

10.3 Challenges to Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

10.3.1 Understandability and Rigidity . . . . . . . . . . . . . . . . . . . . . . . 189

10.3.2 Revisiting the Law of Contracts . . . . . . . . . . . . . . . . . . . . . . 189

10.3.2.1 Formation of Contract . . . . . . . . . . . . . . . . . . . . . 189

10.3.2.2 Performance and Modification . . . . . . . . . . . . . . . . . 191

10.3.2.3 Enforcement, Remedies, and Dispute Resolution . . . . . . . 192

10.4 Responses to the Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

10.4.1 Paradigm Shift From “Code Is Law” to “Law Is Code” . . . . . . . . . . 194

10.4.2 Regulatory Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

10.4.3 Judiciary as Last Resort . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

10.5 Online Platforms as Intermediaries . . . . . . . . . . . . . . . . . . . . . . . . . 198

10.5.1 Gatekeeping Theory Revisited . . . . . . . . . . . . . . . . . . . . . . . 198

10.5.2 Legislative History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202

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10.5.3 Practice in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

10.5.4 Trend of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

10.6 The Way Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

10.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

Part IV Privacy, Security and Data Protection . . . . . . . . . . . . . . . . . . . 211

11 Blockchain and Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . 213Lokke Moerel

11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

11.2 Difficulty of Identifying the Controller . . . . . . . . . . . . . . . . . . . . . . . 215

11.3 Overview Issues Posed by Blockchain under the GDPR . . . . . . . . . . . . . . 216

11.4 A Different Perspective: Blockchain in Context . . . . . . . . . . . . . . . . . . . 217

11.4.1 Blockchain is a General Purpose Technology . . . . . . . . . . . . . . . 217

11.4.2 Blockchain as a New Global Resource . . . . . . . . . . . . . . . . . . . 218

11.4.3 No More Middlemen? . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

11.4.4 Decentralization in a Broader Context . . . . . . . . . . . . . . . . . . . 220

11.5 Cross-Border Enforcement and Jurisdiction Issues . . . . . . . . . . . . . . . . . 221

11.6 Broader Governance Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

11.7 GDPR Does Not Impose Requirements on Designers of Technology . . . . . . . 224

11.8 Individuals as Data Subjects and as Controllers: Does This “Turn the Conceptual”

GDPR Framework on Its Head? . . . . . . . . . . . . . . . . . . . . . . . . . . . 226

11.9 Issues with Blockchain Are Not Limited to Data Protection . . . . . . . . . . . . 227

11.10 Right to Be Forgotten Is Not Absolute . . . . . . . . . . . . . . . . . . . . . . . . 228

11.11 Privacy-by-Design Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

11.12 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232

12 Data Protection in Hybrid Worlds . . . . . . . . . . . . . . . . . . . . . . . . . 233Sjef van Erp

12.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

12.2 Traditional Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

12.3 Political Choices, Policy Choices and Leading Principles . . . . . . . . . . . . . 235

12.4 Data as an Object of Entitlement . . . . . . . . . . . . . . . . . . . . . . . . . . 237

12.5 Final Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238

13 Smart Contracts: Issues of Property and Security Rights . . . . . . . . . . . . . . 240Louis-Daniel Muka Tshibende

13.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240

13.2 Overview of Legal Issues Relating to Property and Security Rights . . . . . . . . . 241

13.2.1 New Items Captured by Property and Security Rights . . . . . . . . . . . 241

13.2.2 Old Constraints Relating to Property and Security Rights . . . . . . . . . 243

13.3 Prospective Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244

13.3.1 Proposals for States and Public Authorities . . . . . . . . . . . . . . . . . 244

13.3.2 Suggestions for Lawyers and Contracting Practices . . . . . . . . . . . . 249

13.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

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14 Algorithmic Contracts and Consumer Privacy . . . . . . . . . . . . . . . . . . . 251Lauren Henry Scholz

14.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

14.2 Algorithmic Contracts versus Smart Contracts . . . . . . . . . . . . . . . . . . . 254

14.3 Consumer Contracts versus Business-to-Business Contracts . . . . . . . . . . . . 257

14.4 Privacy Clauses and Individual Rights . . . . . . . . . . . . . . . . . . . . . . . . 261

14.5 Limitations on Freedom to Contract Away Privacy Rights . . . . . . . . . . . . . 264

14.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

Part V Smart Contracts: Courts and the Legal Profession . . . . . . . . . . . . . 269

15 Smart Contracts and the Courts . . . . . . . . . . . . . . . . . . . . . . . . . . 271Marc Clément

15.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

15.2 Concept of Interfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272

15.2.1 Closed World of Software Engineers . . . . . . . . . . . . . . . . . . . . 273

15.2.2 Do Blockchain Technologies Modify the Picture? . . . . . . . . . . . . 275

15.2.3 Coding Contractual Commitments . . . . . . . . . . . . . . . . . . . . 276

15.3 Exploring Interfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

15.3.1 First Interface: Legality of the Operation . . . . . . . . . . . . . . . . . . 277

15.3.2 Three Additional Interfaces: Oracles, Subscription and Delivery . . . . . 278

15.3.2.1 Oracles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279

15.3.2.2 Subscription of Contract . . . . . . . . . . . . . . . . . . . . 280

15.3.2.3 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281

15.3.2.4 From Intention to Software: A Fifth Interface . . . . . . . . . 281

15.4 Ignoring Conflicts of Interpretation? . . . . . . . . . . . . . . . . . . . . . . . . . 283

15.5 Alternative Dispute Resolution Mechanisms and Effectiveness of Courts in a

Utopian World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

15.6 Beyond Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286

16 Usefulness and Dangers of Smart Contracts in Consumer Transactions . . . . . 288Oscar Borgogno

16.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288

16.2 Setting the Scene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289

16.3 Features of Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291

16.3.1 Strengths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291

16.3.2 Weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292

16.3.3 When Are Smart Contracts a Smart Choice? . . . . . . . . . . . . . . . 294

16.4 Stakes for Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

16.4.1 Obstacles to Consumer Rights Enforcement . . . . . . . . . . . . . . . 295

16.4.2 Facilitating Enforcement of Rights through Smart Contracts . . . . . . . 296

16.4.3 Case of Passenger Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 297

16.5 Stakes for Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299

16.6 Looking Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301

16.6.1 What Degree of Decentralization? . . . . . . . . . . . . . . . . . . . . . 302

16.6.2 Which Regulatory Strategy? . . . . . . . . . . . . . . . . . . . . . . . . 302

16.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304

16.8 Postscript: Smart Contracts and Lawyers (Mathieu Martin) . . . . . . . . . . . . . 305

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16.8.1 The Lawyer and “the Code Is Law” . . . . . . . . . . . . . . . . . . . . 305

16.8.2 Lawyer and Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306

16.8.2.1 Lawyer as Smart Contract Publisher . . . . . . . . . . . . . . 306

16.8.2.2 Lawyer’s Ethical Obligations. . . . . . . . . . . . . . . . . . . 307

16.8.3 Smart Contract as Universal Tool . . . . . . . . . . . . . . . . . . . . . 307

16.8.4 Lawyer’s Intellectual Impoverishment . . . . . . . . . . . . . . . . . . . 308

16.8.5 Smart Contract and the Lawyer 2.0 . . . . . . . . . . . . . . . . . . . . 308

16.8.6 What Is Left for the Lawyer? . . . . . . . . . . . . . . . . . . . . . . . . 308

Part VI Future of Smart Contracts, Blockchain and Artificial Intelligence . . . . 311

17 Smart Transactional Technologies, Legal Disruption, and the Case of NetworkContracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313Roger Brownsword

17.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

17.2 Two Types of Disruption to the Law . . . . . . . . . . . . . . . . . . . . . . . . . 315

17.2.1 First Disruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316

17.2.2 Second Disruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317

17.3 Two Responses to Smart Transactional Technologies: Coherentist and

Regulatory-Instrumentalist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

17.3.1 Coherentism and Regulatory Instrumentalism . . . . . . . . . . . . . . . 320

17.3.2 Three Strands of Coherentist Thinking . . . . . . . . . . . . . . . . . . 320

17.3.2.1 Formal (Internal) Coherence of Contract Doctrine . . . . . . 320

17.3.2.2 Substantive Coherence . . . . . . . . . . . . . . . . . . . . . 321

17.3.2.3 Classificatory or Template Coherence . . . . . . . . . . . . . 321

17.3.3 Courts, Legislatures, and Regulatory Agencies . . . . . . . . . . . . . . . 323

17.4 Two Responses to Smart Contracts and Networks . . . . . . . . . . . . . . . . . . 325

17.4.1 Networks and the Law of Contract . . . . . . . . . . . . . . . . . . . . . 325

17.4.2 Networks, Smart Contracts, and Coherentism . . . . . . . . . . . . . . . 327

17.4.3 Networks, Smart Contracts, and Regulatory-Instrumentalism . . . . . . . 329

17.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

17.6 Coda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333

18 Observations on the Impact of Technology on Contract Law . . . . . . . . . . . 334Barbara Pasa and Larry A. DiMatteo

18.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334

18.2 Smart Contracts: Old Legal Constructs or New Regulations? . . . . . . . . . . . . 336

18.2.1 Smart Contracts as Traditional Contracts . . . . . . . . . . . . . . . . . 339

18.2.1.1 Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

18.2.1.2 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . 340

18.2.2 Impossibility of Performance and Self-Sufficiency . . . . . . . . . . . . . 342

18.2.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

18.2.4 Transmission of Real Estate and Smart Property . . . . . . . . . . . . . . 344

18.3 Shortcomings of Blockchain and Regulation of Smart Contracts . . . . . . . . . . 345

18.3.1 E-Platforms and Networks . . . . . . . . . . . . . . . . . . . . . . . . . 345

18.3.2 Data and Privacy Protection . . . . . . . . . . . . . . . . . . . . . . . . 347

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18.3.3 Blockchain and Consumers . . . . . . . . . . . . . . . . . . . . . . . . 349

18.4 Intersection of Law and Technology: A View from the Balcony . . . . . . . . . . 350

18.4.1 A Perspective from China . . . . . . . . . . . . . . . . . . . . . . . . . 352

18.5 Blockchain from the Front Lines . . . . . . . . . . . . . . . . . . . . . . . . . . 352

18.6 Assessing the Present and Fearing the Future . . . . . . . . . . . . . . . . . . . . 353

18.6.1 Terminology and Lawyers as Coders . . . . . . . . . . . . . . . . . . . . 353

18.6.2 Detachment of Human Element from Contracting . . . . . . . . . . . . 354

18.7 Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355

18.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357

19 Visions of Future: Smart Contracts, Blockchain, and Artificial Intelligence . . . 359Diana Wallis

19.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359

19.2 Legislation and the Legislator . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359

19.2.1 Limits of Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

19.3 Law as Reactive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

19.4 Flight from Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361

19.4.1 Lessons from History: E-Commerce Directive, Brussels I, and Rome II . 361

19.5 Digital Paradigms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363

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Contributors

Oscar Borgogno is a scholar-in-residence in the Department of Law at the University ofTurin, Research Fellow at the University of Tilburg andMScCandidate at the Universityof Oxford.

Roger Brownsword is Professor of Law at King’s College London.

Michel Cannarsa is an associate professor and Dean of the Faculty of Law at LyonCatholic University.

Lei Chen is Associate Professor of Law and Associate Dean at City University ofHong Kong.

Marc Clément is a judge on the Lyon Administrative Appeal Court.

Riccardo de Caria is a postdoctoral fellow at the University of Turin.

Claudio Demartini is a professor in the Department of Control and ComputerEngineering at Politecnico di Torino, Italy.

Larry A. DiMatteo is the Huber Hurst Professor of Contract Law and Legal Studies at theWarrington College of Business at the University of Florida.

Mateja Durovic is Lecturer in Contract and Commercial Law at Kings College London.

Valentina Gatteschi is an assistant professor in the Department of Control andComputer Engineering at the Politecnico di Torino.

André Janssen is Chair Professor of Private Law at the University of Radboud, Nijmegen.

Fabrizio Lamberti is an associate professor in the Department of Control and ComputerEngineering at Politecnico di Torino, Italy.

Mathieu Martin is an attorney of law in Lyon, France.

Eliza Mik is an assistant professor at Singapore University.

Lokke Moerel is Professor of ICT Law at Tilburg University.

Barbara Pasa is Professor of Comparative Private Law and Intellectual Property Law andPolicy at the University of IUAV Venice.

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Cristina Poncibò is Associate Professor of Comparative Law at the University of Turin.

Lauren Henry Scholz is an assistant professor at Florida State.

Eric Tjong Tjin Tai is Professor of Law at the University of Tilburg.

Piotr Tereszkiewicz is assistant professor of Law at Jagiellonian University.

Louis-Daniel Muka Tshibende is associate professor at Lyon Catholic University.

Sjef van Erp is a professor at Maastricht University.

Diana Wallis is the former president of the European Law Institute.

Angelia Wang is a teaching fellow at the Hong Kong Polytechnic University.

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Preface

This book comprises the collected, revised and expanded papers from a conferenceon the impact of technology (smart contracts and blockchain technology) oncontract law, held at the Lyon Catholic University in April 2018. The topicsselected for the conference, and hence for the chapters of this book range acrossthe areas of smart contracts and electronic or digital platforms, in order to illumi-nate the impact of new, often disruptive technologies on contract law. Alternatively,it addresses the issue of whether blockchain technology allows private parties toescape contract law, government regulation and the court system. The overwhelm-ing conclusion of the contributing authors is in the negative. The second-orderissue addressed in the book is: Does contract law need to be adjusted to address thecontract law topics presented by this unique form of contracting? Furthermore,should governments intervene through new regulations targeted at smart contracts,blockchain technology and online platforms? Again, the consensus opinion is thatcontract law’s flexibility will allow it to be applied to these types of technology ordoing business without the need for substantial adjustments in the law. In the areaof government intervention, the consensus sees little need to hastily rush to regulatesmart contracts and blockchains since this relatively new technology is still in itsinfancy. However, targeted regulation of online platforms is needed for purposes ofaddressing data protection, privacy concerns and property rights.

As editors of this book, it has been our pleasure to work with leading contract scholars,practitioners and administrators of law, as well as technologists from a variety of countriesfrom Asia, Australia, Europe and North America. We are in debt to all of the contributorsto this volume, from whom we learned and have been enriched in this evolving area oflaw and technology.

We are also indebted to the Lyon Catholic University, University of Florida and theUniversity of Turin (Torino) for their financial support, especially the Law School atLyon Catholic University for hosting the conference. Special thanks go to DeanCannarsa and Frédérique Genin for all their hard work. We have also been ably assistedin our work by the commissioning and editorial staff at Cambridge University Press,who had faith in the value of this project and who have been on hand to advise and helpus as the book progressed from idea to finished work. In particular, we are grateful toJohn Berger, Matt Gallaway and Jackie Grant.

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The value of any scholarly work such as the present one lies in the extent to which itadvances knowledge in a given field. We trust that the readers of this work will find muchto interest them, if not to enlighten, and that it will be of use to scholars in the civil andcommon law worlds who understand its importance to the advancement of the rule of lawand as a modest contribution to the corpus of legal knowledge.

Larry A. DiMatteo, Michel Cannarsa and Cristina Poncibò

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